What Is Included In the U.S. National Debt? Who Does the U.S. Owe All That Money To?

Updated on February 7, 2015

Source

How Much Is the U.S. National Debt?

Currently our national debt is at, give or take a few million -- 17 and a half Trillion dollars (as of April 2014). Yes, that is with a T. Trillion. Can you even imagine one Billion dollars (with a B) in your mind, let alone one Trillion, and then 17 and a half Trillion? It is hard for most people to wrap their minds around so much money and that only makes it harder to understand the U.S. National Debt.

Here is the thing -- some politicians believe, or more accurately, want us to believe, that we are now working for, and basically owned by China. These fear mongering politicians want us to believe that we owe China most, if not the entirety, of the U.S. National Debt!

To hear them tell it, our economy and our world are about to come crashing down around our ears at any moment. It is more certain and scary in the minds of some people than the certainty of death and taxes -- incidentally, 7,000 millionaires paid NO taxes in 2011, the most recent statistics available, so it turns out that only death is a certainty. Lots of people escape taxes, but there is no record of anyone who has ever escaped death indefinitely.

Contrary to what those fear mongering politicians (and their supporters) want us all to believe, our current national debt is not the largest on record. No, it has actually been MUCH bigger and miracle of miracles, when it was much bigger than it is today, the U.S. did not go bankrupt and the sky did not fall.

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History of National Debt

This is a chart showing the history of the U.S. National Debt by year comparing GDP to actual money owed. For anyone who doesn't know, the GAO is the U.S. Government Accounting Office. | Source

Maybe this breakdown will help you visualize all that money.

250 thousands = a quarter million

500 thousands = a half million

1000 thousands = 1 million

1000 millions = 1 billion

1000 billions = 1 trillion

GDP and Its Ratio to the U.S. National Debt

Gross Domestic Product (GDP) is the total value of goods produced and services provided in a country during one year.

Google.com

The total national debt at any given time is about the equivalent of the GDP. See the definition for GDP above. Currently the debt is 69% of current GDP.

Pew Research Center

The U.S. National Debt Has Historically Been Much Higher Than It Is At This Moment

Let me qualify the above statement. Our country has had a much larger national debt compared to our country’s GDP. Back during World War II, our debt was much higher compared to our GDP, than our debt is today compared to our GDP, and our GDP is what determines our ability to manage that debt.

You might put the debt to GDP ratio in perspective this way: For the sake of discussion let us say that you make $25,000 a year in total income and your debt for housing, credit cards, etc. is $500,000, or half a million dollars. How long do you think it will take you with those earnings to pay your debt? Yes, forever, if something doesn’t change for the better.

On the other hand, if you make $500,000 in total income every year, how long would it take you to pay off that same $500,000 debt?

So you see, how much income a person – or a country has – in relation to his or her debt, or the country’s debt, makes a huge difference in whether or not it is manageable.

You would not expect Bill Gates to lie awake nights worrying about a debt he may have of say $5, or $500, or $5000, or $50,000, or even $500,000 would you? Bill Gates could probably carry several million dollars in debt with no danger of bankruptcy, because his combined income and assets are beyond most of our imaginations.

Time.com estimates Bill Gates’ worth at 76 Billion, and he is said to be the richest man in the world as of March 2014. He has held that lofty position for 15 of the last 20 years according to Forbes.

Do you understand how debt is relative? The word debt in itself is not evil. The problem comes when a person or a country has more debt than they can reasonably manage.

So long as a country’s GDP is near, equal to, or greater than its debt, it should be able to manage that debt without any real concern. It is when a country becomes indebted considerably beyond its GDP that it may be in trouble.

However, economists like Paul Solman and Paul Krugman and others say that so long as a country’s debt is owed to itself and borrowed in its own currency there should never be a reason for that country to go bankrupt.

During the years of 1939 until approximately 1955, the U.S. National debt was more than 100% of this country’s GDP. Yet here we are safe and sound nearly 60 years later, with no bankruptcy in our history, and no defaulting on our debt in our history either. (See the graph above, "History of the National Debt.")

Our current debt is only 69% (2011) of our GDP and yet we are in imminent danger of bankruptcy and default according to many fear mongers.

“In dollar terms, this is the largest the U.S. debt has ever been. However, one could say the same about [today’s] house payments, grocery bills, [and/or] the prices of new cars,” (Harvey). Dollarwise almost everything costs more than it ever has before, but in comparison to income, it is about the same percentage as it has always been.

Economists look at a person’s or a country’s debt compared to income. Lenders look at an individual’s income/debt ratio when deciding whether or not to loan that individual money. The debt/GDP ratio is what matters when it comes to a country’s national debt. In the case of a country, however, “government debt is not analogous to that in the private-sector because it represents an injection of wealth, not a drag on growth,” (Harvey).

U.S. National Debt Divided Up

This is an approximation of the U.S. National Debt showing 2/3 is owned by the U.S. Government and its citizens and about 1/3 is owned by foreign investors. Thanks to Metagalacticllamas.com for the chart. | Source

Types of Debt

So, if you decide to buy a $1,000 US government savings bond, then you are considered to be included in the "public debt" tally for the country.

Dave Manuel (DaveManuel.com)

"Intragovernmental debt" is money that the government basically owes to itself.

For instance, the government has heavily borrowed from the Social Security fund over the past number of years, as the Social Security fund has taken in more money than it has paid out. The government has borrowed trillions of dollars of this money, basically writing an IOU to itself.

Dave Manuel (DaveManuel.com)

American Citizens Own the Biggest Share of the U.S. National Debt

American citizens own about 53 percent of the total debt of 17.5 Trillion dollars. That is more than half of the total debt.

For people who do not understand percentages, everything starts out at 100 percent, or ALL of it (whatever IT is.). 17.5 Trillion dollars is “all of our debt” and therefore 100 percent of our debt. Of that 100 percent of our debt, 53 percent, or just over half of it, is owned by United States citizens.

Yes, I realize this is probably a huge shock to a lot of people who prefer to believe we owe all that money (along with our souls to hear some people tell it) to China. It gave the fear mongers something to complain about, and a reason to keep their shades pulled down tight, but now what?

A lot of members of that political party that has spent so much time preaching doom and gloom, in part to persuade our older citizens to take cuts in their Social Security and Medicare benefits, have been pretty convincing to a lot of people who do not know any better, and who have trusted the wrong people to tell them the truth.

That same party has demanded cuts in other social programs as well, because they have said disaster is imminent due to our outrageously high national debt that is entirely owed to foreign countries, and most of all, to China.

To put it as simply as I can:

THEY LIED

They did a good job of lying too, did they not? YOU believed them, didn’t you? It can be very confusing to be told one’s country’s economy is about to tank and then a little while later told that it was all a ruse to put more money in the pockets of the wealthy, and of course in the pockets of their favorite congress people too -- the congress members who made it possible for the wealthy to become wealthier.

What Is the Difference Between Our Country’s Deficits and the National Debt?

No, the debt and the deficit are not the same thing. The debt is the accumulation of deficits.

For example, say you need $100.00 in your home budget for food every week. Let us say that you only make enough money for $60.00 a week for food. The difference between what you need for food and how much money you actually have for food is $40.00 in this example. That $40.00 that you are short compared to what you need for food is a deficit.

Let us further say you take your credit card and charge the additional food you need each week. As you do this, you accumulate debt. Every time you charge that $40 worth of food, which is the deficit between what you need for food and the income you actually have available for food, it adds up to a debt. Unless you pay that debt off every month you will end up paying interest on your debt.

Unlike the government, you cannot issue bonds in order to obtain the extra money you need to buy food every week, but you can put that deficit on your credit card if you have one with sufficient credit available on it.

In the case of our country, when any department or program falls short of their budget needed to meet their obligations, money is borrowed, often by selling Treasury Certificates, or dumping money into the general fund from the Social Security Trust Funds. (also in the form of T-bills). The deficit is the difference between what is needed for our country to operate and meet all of its obligations and the amount of money actually coming into the U.S. Treasury from various sources, mostly taxes.

Elizabeth Warren, Advocate for Ordinary People

How can United States citizens own all that debt?

The following numbers are agreed to by many well-known economists along with Paul Solman and PBS News Hour, The Christian Science Monitor, the Pew Research Center, and more. See sources at the end of this article.

At the end of September 2013, after many months of politicians yelling that the sky was falling as a direct result of the National Debt, 28.4% of the debt (about $4.76 trillion) was owed to another arm of the federal government itself (Pew Research Center).

More than 2.76 Trillion of the debt is owed to the Social Security Trust funds. Another big holder of the U.S. National Debt is the Federal Reserve System, which collectively held nearly 2.1 Trillion dollars worth of Treasuries (12.4% of the total debt) at the end of September 2013, (Pew Research Center).

Included in the 17.5 Trillion dollars of the U.S. national debt are pension funds owed to people who one day hope and plan to retire. Investors in insurance companies, banks, and holders of mutual funds are also included. They bought into the various types of funds to make their retirement money grow and now they are owed money, which is included in the U.S. national debt.

The money a person has invested for their future retirement will continue to be a part of the national debt until that person has collected every penny owed to them. Even if they die, in the case of personal investments, the money owed to the deceased person will continue to be part of the national debt as it will likely be inherited and left in investment by the person who receives it through inheritance.

People who have invested in or purchased Treasury Notes or municipal bonds own part of our national debt also. You know the bonds that cities (maybe yours) make available for sale to people like you when they want to build a new school or add another fire station in a newly developed subdivision?

According to Paul Solman and PBS News Hour: “State and local governments, for example, including their pension funds, hold about $700 billion; mutual funds, nearly $900 billion; private pension funds, $600 billion; banks, $300 billion or so; insurance companies, $260 billion. These figures are from early to mid 2013.

Add in personal holders of U.S. savings bonds -- another $185 billion -- and individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors in Treasuries, and you've got an additional $1.4 trillion or so. In total that’s another $4.3 trillion more in money Americans essentially owe -- to Americans!

Grand subtotal thus far: $11 trillion – nearly two-thirds of the total U.S. National Debt.

How to Help Lower the National Debt

Want to help lower the national debt? Stop investing in your retirement savings. Put it in your mattress. Stop paying into Social Security. Stop buying anything on credit like houses, vehicles, businesses, college educations, vacation homes, boats, or anything at all. Pay cash or go without. Can you even begin to imagine how badly our economy would tank if even a quarter of all U.S. citizens did this?

You see, when you invest in any of the investment vehicles previously mentioned you raise the national debt. When you buy a house or other large expenditure on credit, often your mortgage or business loan will be wrapped into a package with other similar transactions and be sold to investors, thus becoming a part of the national debt and raising it still higher.

So it seems that most of that horrendous 17.5 Trillion dollar debt is owed to our friends and neighbors, our coworkers, and family members, maybe even to ourselves!

Paul Krugman

Yes, Americans owe 11 TRILLION DOLLARS to AMERICANS!!

Paul Krugman is fond of saying we owe all that money included in the U.S. National Debt to ourselves. Some people do not like Paul Krugman. He is not a member of that party that likes to control us by saying the sky is falling every time we turn around, nor does he subscribe to their idea that creating more poor people, or leaving the ones we already have to suffer without medical care or food, helps our country.

Paul Krugman has acquired quite a few accolades for his work despite finding fear politics disdainful. Those accolades include the Nobel Memorial Prize in Economic Sciences, the John Bates Clark Medal, the H. C. Recktenwald Prize in Economics, and the Prince of Asturias Award for Social Science. Clearly Krugman knows something about economics and is right a sufficient amount of time to impress the organizations that make these awards to people outstanding in their fields.

“Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go,” (Paul Krugman, the New York Times).

Please do read Krugman’s column explaining how some politicians have been preaching doom and gloom for years now and it has not happened yet. Will it happen if they preach it long enough? We know that negative thoughts and attitude can bring about disaster in our personal lives, so maybe that is what politicians are trying to do? Bring disaster on this country through preaching lies?

Who Is the Single Biggest Creditor to Whom the U.S. Owes Money? If you Answer “China” You are WRONG

“The single biggest creditor of the U.S. National debt as of September 2013, was in fact, Social Security’s two trust funds, which together held $2.76 trillion in special non-traded Treasury securities (16.5% of the total debt). (Social Security revenues exceeded benefit payments for many years; the surplus was required by law to be invested in Treasuries.”) (Pew Research Center)

Did you read the above paragraph carefully? The single biggest creditor, in other words the one creditor that owns the biggest part of the U.S. National Debt, is the Social Security program’s two trust funds. That’s us, folks. We are our own biggest creditor.

That also means that no other entity, no other creditor, investor, lender, or anyone, or anything else, not China, not England, not Saudi Arabia, not any other single holder of our debt is owed more than 2.76 Trillion Dollars. That sounds like a lot of money, and it is, but compared to our GDP, it is peanuts. Pocket change.

Out of the entire U.S. National Debt, less than a third is owed to anyone outside of this country. Most of the U.S. National Debt, as explained below, is owed to ourselves.

So if we owe most of that money to ourselves, what is this thing about China owning the United States and every soul in it? More on China later.

Source

Raising the Debt Ceiling

When Congress members postured and threatened not to raise the debt ceiling in the fall of 2013, the people who would not have received their interest payments, if Congress had followed through and not raised the debt ceiling were US!!

Congress members threatening not to raise the debt ceiling were threatening to hurt us, their fellow Americans who pay their salaries!

Currently, despite what some complainers want to believe, the U.S. is considered a dependable investment vehicle. The U.S. has always met its obligations, and that is why foreign investors want to buy our Treasury Certificates. That is why foreign investors want to invest in the United States. U.S. citizens should be proud of the financial reputation this country has built instead of trying to tear it down with their lies and scare tactics.

Our country has a good reputation abroad when it comes to fiscal responsibility and dependability. Who out there wants to change that? Who would feel better if we were looked down on for not keeping our promises? Who among my readers would prefer that the U.S. be known for defaulting and therefore be considered a bad risk?

Only a very few foreigners would be hurt -- if any -- if the interest on our National Debt were not paid -- but a whole lot of Americans would be hurt.

There is usually enough in the Social Security program to pay out benefits for 1-2 months in the event congress refuses to raise the debt ceiling. After that, if Congress has not acted to resolve the situation, and you are a Social Security beneficiary, you may need to get a job.

Can’t you just see Xi Jinping (leader of China) crying crocodile tears because our Congress refused to raise the debt ceiling and gave their own countrymen and women the shaft?

Which Presidents Raised the U.S. Debt the Most?

Provided by the U.S. Department of the Treasury -- considered a credible entity by most people. | Source

Definitions of Debt

Total federal debt—also known as gross debt—is the amount of the federal government's outstanding debt issued by the Treasury and other federal government agencies. Total federal debt, which was about $16.1 trillion at the end of fiscal year 2012.

A Fiscal Year is any yearly accounting period, regardless of its relationship to a calendar year. The fiscal year for the federal government begins on October 1 of each year and ends on September 30 of the following year; it is named by the calendar year in which it ends. Prior to fiscal year 1977, the federal government began its fiscal year on July 1 and ended it on June 30.

[U.S. debt] consists of two components: (1) debt held by the public and (2) debt held by government accounts or various arms of the federal government.

Public Debt: Federal debt held by all investors outside of the federal government, including individuals, corporations, state or local governments, the Federal Reserve and foreign governments.

Debt held by Government Accounts: Federal debt owed to government accounts, primarily to federal trust funds such as Social Security and Medicare. The cumulative surpluses, including interest earnings, of these trust funds and other government accounts have been invested in Treasury securities, almost always nonmarketable. Whenever a government account needs to spend more than it takes in from the public, the Treasury must provide cash to redeem debt held by the government account. Consequently, this reflects a future claim on the economy and taxpayers.

(Also known as intragovernmental debt holdings -- such as the Social Security and Medicare trust funds.)

Government Accountability Office

If American Citizens Own Two Thirds of the National Debt -- Who owns the rest?

Foreign creditors of course! Foreign creditors including China, Japan, the United Kingdom, and various oil producing nations own the balance of the U.S. national debt that American citizens and United States government entities do not own.

Some U.S. citizens like to separate themselves from our government, but in fact when our government owes somebody money – even itself – then we citizens are the folks that will ultimately pick up that tab. So really, over two thirds of the national debt is owed to U.S. citizens, one way or another.

The countries listed above own about 5.5 Trillion dollars worth of the U.S. national debt -- a long way from owning our entire country, or even one of our states. Or maybe you think our entire country and everything in it is only worth 5.5 Trillion? Really?

Foreign countries, like U.S. citizens, are allowed to purchase our Treasury certificates and other securities offered to the general public. That is how they came to own some of our debt in the first place.

I know some of you want to believe President Obama went hat in hand, crying pitifully, and got down on his knees and begged Xi Jinping (pronounced shee jeenping, with emphasis on the ping), to bail him out. If you truly believe that, well, what can I say? You are wrong.

It seems that lots of people like to invest in our country because they believe it is a wise investment that is likely to yield a good profit. They believe our country is stable and unlikely to default on their investments. In other words they do not believe we will take their money and then refuse to pay them back with interest as promised. In still other words, they have more confidence in this country than many of the sorry citizens living here, and more confidence in this country than those sorry citizen's sorrier representatives in congress seem to have!

What if those investors in other countries who bought our treasury certificates suddenly decided to cash them in? Well, what would happen if you or I owned them and cashed them in?

I will tell you what would happen. The Treasury Certificates would not mature and therefore they would never reach their full value with interest, because when you sell your securities before they mature, you lose money. Would any wise investor do such a thing if they had a choice?

Even if foreign investors did decide to cash in their Treasury Certificates way early losing interest, the total amount the U.S. owes to investors in other countries, as previously stated, is about 5.5 Trillion dollars. Our GDP is much higher than that. In other words we are good for that amount -- but wait, if it is cashed in early it could be considerably less than 5.5 Trillion dollars total because 5.5 Trillion is the value with interest added. The interest will be lowered if they are cashed in early.

Of course a lot of people who support the Party of Scare think we should default on our obligations. What does that say about the supporters of the Party of Scare and what would it say about all of us if we did that?

I wonder how the pro-defaulters would feel if their employer defaulted on their paycheck? Or if their health or other insurance company defaulted on their agreement to pay for their health services or car repairs from an accident?

These people who want to default on our national debt apparently think our reputation as a country is unimportant. They do not realize how our country’s default on our obligations would filter down to all of us including themselves and how much worse their lives would become compared to the present.

The U.S. has always paid its debts and that is the reason people are willing to lend the U.S. Government money through the purchase of certificates and bonds.

Definition of a Fire Sale

A sale of goods or assets at a very low price, typically when the seller is facing bankruptcy.

What About China?

Specifically, as of July 2013, the U.S. owed Chinese investors 1.28 Trillion Dollars. Who of my readers believes that is enough to force the United States into bankruptcy? Think about the U.S. GDP and what this country is worth if you can wrap your mind around that huge amount.

Would you sell your home, valued at $150,000 for whatever you could get for it at a fire sale if you were facing a debt of say, $5,000 and you had to raise that amount of money in a hurry? If you would, you really should consult someone who knows more than you do about finances because you are your own worst enemy. (See the definition of ‘fire sale’ in the right hand column.)

No one in their right mind is going to worry about the U.S. going bankrupt when our GDP is equal to or greater than our National Debt and when at least three quarters of that debt is owed to ourselves.

Those people who wanted the U.S. to default on our interest payments (and probably have not changed their minds) were/are basically hoping and praying Congress would/will default on the Social Security program and other retirement and investment vehicles of U.S. citizens. Yes, on Medicare too! Who needs enemies when you have friends like that living right next door? Or among your own family members?

History of U.S. Inflation

This shows the history of the United States' inflation rate since 2004 as well as our current inflation rate (2.4%). As you can see it is currently very low. Who would like to return to that wonderful year of 2008 when inflation was all but zero? | Source

Share Your Opinion

Do You Feel Better Informed About Our Debt Than Before Reading This Article?

Knew all of these things before, but thanks for the read.

Republicans tell a different story and I think they are always right.

Being scared trumps being sorry, so I am going to stay scared.

Nothing here makes any sense to me. You must be a liberal.

After reading this I finally have a better understanding of our debt and what is included. I feel much better knowing China doesn't own us after all.

Will Our Children Suffer Under Tremendous Tax Burdens As a Result of Our Current Spending and Huge National Debt?

The following is a question put to Paul Solman by a member of his PBS News Hour audience:

Nick Estes of Albuquerque, New Mexico asked Paul Solman this question: “Is it true that running federal budget deficits during present conditions increases a harmful debt burden on our children? If so, could you explain how, since Treasury bonds will also be assets to them?”

Here was Solman’s short answer: “If by “our children” you mean the next generation of Americans, they are holding, at least implicitly, the substantial majority of our national debt. It is the government’s liability; it is their asset.

Yes, if taxes rise to pay off the interest and principal, the next generation will be on the hook. But mostly, you could argue, they will be paying themselves. Especially to the extent that today’s American holders of Treasurys bequeath them to their children.”

So what that means is those people who own Treasury certificates and government bonds will pass those investment vehicles on to their children when they die. Their children will benefit from their parent’s investment. Instead of being burdened with a huge debt, the next generation will actually cash in on it as a result of interest earned on their parent’s investments.

Finally, regarding our current (February 2012 - July 2014) economic situation in the U.S., John T. Harvey writing for Forbes says, “When such situations arise, only an entity capable of spending more than it earns without the prospect of bankruptcy is capable of breaking the stalemate. And that, of course, is the government, which can never be forced to default on debt denominated in its own currency, as ours is.”

Harvey is speaking of the stalemate of jobs not being created, or not being created fast enough when he says “when such situations arise.” He is making clear that so long as our debt is owed to ourselves in our own currency there is no need to go bankrupt or to fear that will happen. You may recall that Paul Krugman said the same thing in similar words.

Even our private or individual debt, credit cards, short-term loans, etc., will not cause our country to go bankrupt so long as it is all held in our own currency by our own country.

Indeed, creating more debt for the purpose of getting this country back on its feet so to speak, would be a good thing. People who have money, spend money, and that in turn creates demand (customers) for businesses who have no demand currently because no one has money to spend. Why would anyone create jobs when there are no customers?

Some people believe the tighter we pull our belts the better, but in fact, according to most economists, the government behaving in that way is actually making the situation worse.

As you might imagine, if you pull your belt tight enough you will make it impossible for your body to function, and if continued for a long time, you will die. By the same token, a government unwilling to move to alleviate a seriously bad financial situation will destroy itself.

Applying for jobs is not the only way to meet job search requirements. This is a list of the many different activities that count towards meeting the number of job searches you are required to make each week to...

Comments 112 comments

Jack, thank you for taking time out of your busy schedule to check out this article. Despite what most people believe, money isn't the most valuable thing any of us has. It's time. We never know for sure how much time we have, and once spent, wasted, killed, or otherwise used (abused?), it is gone forever. You can get more money and replace the money you spent, lost, misplaced, etc., but you can never get more time. Once time is gone, it's gone forever. Thank you for giving me some of yours.

Jack 4 months ago

Cited data are factual, not entirely truthful.... But, that's the only way any matter is expressed these days..... Thanks C. E.

Au fait 5 months ago from North Texas Author

Shyron, thank you for sharing this article. I don't think most people want to know the truth. It's alien to their senses. Besides, there would be nothing to complain about . . . take care and try to stay in where it's cool.

Shyron E Shenko 5 months ago

Au fait, I do wish the voters would read this and realize that things are not what we are led to believe.

I do wish Bernie would stop acting like a child that thinks he should be given the game even after he has lost.

Well dear friend time to go back out into that awful heat and finish up what we started yesterday and hope it doesn't finish me.

Blessings and hugs dear friend.

Au fait 7 months ago from North Texas Author

Shyron, thank you for sharing this article again. I just saw some video of a reporter interviewing Trump supporters. OMG. And these people are allowed to vote! I have never seen such uncomplicated minds.

Hope all is well with you . . .

Shyron E Shenko 7 months ago

Au fait, I just came to share this important information again.

I hope it is not to warm for you.

Blessings and hugs dear friend.

P.S. I am glad to see Aunt Jimi is still around.

Au fait 7 months ago from North Texas Author

Thanks you for coming by Shyron. Yes, I've heard Trump especially, playing on the old lies and fears that the kind of people who support him want to hear. Think I told you scientists have discovered there is a gene for violence that some people have. Do you suppose there is a gene for feeling more secure with lies than the truth? You can't tell these people the truth. They will have none of it. If you can't go along with the lies they prefer to believe they don't want to hear it.

Au fait 7 months ago from North Texas Author

Thank you Shyron for commenting and for your high praise. Trump is busy misleading people about the debt and he's doing it because he knows what people want to hear. There is not going to be any more Hubs of the Day. Too bad . . .

Au fait 7 months ago from North Texas Author

Nadine May, thank you for coming by and sharing your thoughts on this important subject!

Nadine May 7 months ago from Cape Town, Western Cape, South Africa

That was a very well written article on this difficult topic Au fait. Well done. I live in a country where our currency ( the Rand) is very unstable, but I live from day to day and I will NEVER let negative thoughts and attitude about economy matter effect me. I'm grateful to have food every day, a roof over my head and clothes for all kind of weather. That is more than many people in South Africa have. We are fortunate.

Shyron E Shenko 7 months ago

Au fait, this is so informative, everyone should read it, especially at this time with all the politicians telling us how deeply in debt we are and how we need them to dig us out. What most people don't realize is: If they are digging it down not up.

Stay cool, blessings and Hugs, my dear friend.

Au fait 7 months ago from North Texas Author

StanfromMarietta, thank you for taking so much time to write a very informative comment. I hope my readers will all take advantage, and learn from someone who really knows what they're talking about!

Shyron E Shenko 8 months ago

You are so welcome Au fait, I think everyone should read this so they might get some idea of where our national debt is owed and to whom.

Forgive the typos and mistakes, can't think to straight for the noise, it is worse then ever. Hope that thing is not growing.

This is a great hub and should make HUB OF THE DAY

Take care dear friend, Blessings and Hugs.

Au fait 8 months ago from North Texas Author

Thank you for stopping by and commenting Shyron.

Trump is trying to appeal to the majority and that is why he has such a huge following -- he IS appealing to the majority, and he does that my telling them what they want to hear, because it is what they truly believe.

Most people don't know beans about the national debt and they don't want to know. They want to keep harping the same old lies because they're lazy. It's just too much work to come up with something else to lie about and be stupid about that will have as much impact in their tiny minds. No, it doesn't make sense, but these people never make any sense anyway. Trump isn't stupid. He knows how to con these people with their own ignorance. That's why I'm sitting back and watching it all for its entertainment value. These people are so ignorant they don't even see how they're being taken by their own ignorance.

StanfromMarietta 8 months ago

Another aspect not covered by those that focus on deficit spending alone and the national debt, is that fiscal balance is not generally desirable. What is desired is an economy with sufficient money in circulation to sustain full production and full employment at stable prices.

Money enters into circulation IF from numerous sources: exports, government spending, investing of savings, and bank loans.

There is an equation discussed in another hubpage by me that shows that there is a mathematical equation, simple to understand, that determines the change in overall quantity of money in circulation. This equation is

ΔC = IF - OF

C is the amount of money currently in circulation

ΔC is the current change in money in circulation due to

IF - inflows of money into circulation

OF - outflows of money from circulation.

Anyone who has watched water go into a tub while some water is currently also draining out will understand this equation. If you turn the taps of inflowing water into the tub and this amount is more than draining out, the the amount of water C in the tub will grow and its level will rise. If there are more waters flowing out through several drains than the amount flowing in, the quantity of water in the tub will decrease and the level of water in the tub will drop.

The above equation is closely analogous to the water-in-the-tub example, and the same equation, using different symbols can be applied.

So if IF greater than OF (inflow greater than outflow) then C will increase because the change in circulation ΔC of money will be positive. If IF less than OF (inflow less than outflow) then ΔC (change in money in circulation) is negative, and the quantity of money in circulation is dropping.

Now, another thing we can conclude from the above equation is that there is more than one way in which IF and OF can be changing. That is because it is possible to have different mixes of inflows that add up to the same total IF.

Likewise it is possibile to have different mixes of outflows that add up to the same total OF.

So, for example, Vice President Dick Cheney said that deficits don't really matter. The implication was we could do deficit spending on the war in Iraq and other necessary activities of government, and as long as the amount of money in circulation C was not changing, the deficit spending wouldn't matter.

How could that be? Well, suppose that the government encouraged citizens buying imports from countries like Japan, China and Saudi Arabia that equalled the government deficit which is a positive inflow into the economy. Then the deficit would be cancelled by the import money leaving the economy (everything else being equal).

So, the balance was to maintain the level of the money in circulation in the economy at a fixed level where there was full employment and full production. The balance of government spending and taxes was not relevant. Deficit spending leads to the creation of new money when banks lent newly created money to the government (where it is exchanged by large correspondent banks into government reserves dollars) needed to buy the securities from the Treasury.

So, as long as the deficit spending does not cause the money in circulation to rise above the level where more money is circulating than needed to maintain full production and employment at stable prices, then there will be no inflation of prices.

On the other hand, if more money is leaving circulation via various outflows than is regularly flowing into circulation, the economy will then have less money with which to buy all the goods produced and hire all the workers who need jobs, and we will have deflation (recessions when this is mild, and depressions when this is severe).

We also need to consider that money has to be continuously entering circulation, because as money circulates, at each transaction some of the buyers may not be spending all their dollars but putting them away in savings somewhere. (Savings is just money not being spent for a certain interval in time).

In time without new money entering circulation, money will tend to be stashed away somewhere by each party in the economy, thus leaving circulation.

Some money can come back from savings into investing, but this may not always happen, if an economy is in recession or heading for depression, because people will begin saving more to tide them over the recession/depression and not buying. Producers of goods will sell less of their goods and stop producing and lay off unneeded workers, meaning more and more workers don't have incomes to allow them to buy all the things they want that are produced.

And where can the economy get money to make up for the losses in circulation, if exports cannot increase, and banks are not lending because producers are not expanding needing funds for expansion.

The primary source of new money coming into the economy is from deficit spending. This must be monitored closely to prevent excess money coming and causing inflation. Inflation can be partially controlled when that occurs by cutting government spending and raising taxes. Government can also sell US Treasury securities, not for deficit spending, but to drain money out of circulation for the time being. Another source of continuing inflow of money can come from Consumers. Consumers will mostly be able to create new money via banks lending it to them on credit cards up to a certain point beyond which they see no hope to paying off their credit card debt. At that point they will default on their credit card debt and the banks will have to write that money off as bad debt and decrease the money on their books. In time the credit-card money spent by consumers is taken up into savings, and the economy shrinks because no more money is coming into circulation to replace the money lost in savings. But businesses will not be borrowing money, and so production will decrease and we have a recession or a depression.

The above equation shows how complex is the the issue of keeping a balance of inflows and outflows of money from circulation.

Focusing on just balancing the budget will not be sufficient because it would be quite possible to balance government spending against taxes, and have a recession or depression.

We need to focus on the whole of money in circulation and how much is flowing in and how much flowing out at any given time, and whether the amount is sufficient to keep the economy at full production and full employment at stable prices.

Shyron E Shenko 8 months ago

Au fait,

I wish I could send this to Donald Trump, he thinks we owe everything to China from the way he talks. Evidently he has never had to call for service on a computer/television/telephone or any other piece of technical equipment, you don't get China.

I hope all is well with you.

Blessings and hugs, Hope you have a Blessed Easter.

Au fait 8 months ago from North Texas Author

Shyron, thank you for stopping by and bringing attention to this article again. No, you won't be hearing much about the debt now because the jinx is up. It never was an issue and most people have discovered that through articles like this one, only from the major news agencies. So now they're on to something else to try and scare people into voting for them. It was actually spotlighted a year or so ago. That's when you stopped hearing much about this issue. Take care . . .

Shyron E Shenko 9 months ago

I am back Au fait, because I have been watching the debates and have not heard a peep from the candidates on the National Debt from either side. What is going on with these yahoos?

Blessings my friend.

Au fait 9 months ago from North Texas Author

Phdast7, very much appreciate your comment. I'm so glad if I can enlighten anyone at all on the truth of this matter.

Au fait 9 months ago from North Texas Author

Shyron, thank you for commenting on this article and for all that you do. I'm certain most people have no idea what is included in our national debt, and sadly, most do not want to know. Most people prefer to whine about it never knowing how it makes them look to people who do know. I wrote this to help educate people, but sadly most people don't want to know the truth. Thanks again for everything! Blessings to you and John . . .

phdast7 9 months ago from Atlanta, Georgia

Thank you, thank you. Very helpful, even on the second read.

Shyron E Shenko 9 months ago

Au fait, I am back to share this again. I think most people never understand what is included in our National Debt.

I hope that all is well with you my friend.

Blessings and Hugs

Au fait 12 months ago from North Texas Author

Sharon, thank you for bringing this article into the light again. Seems like no matter that people hear the truth. It isn't what they want to believe so they reject it for lies. With the presidential election getting closer the lies are going to start getting so thick one will need some waste high wading boots.

Take care . . .

Shyron E Shenko 12 months ago

I came back to re-read this, because of the distorted facts that are being put out there by those who want to manipulate and control all those they look down on.

I do hope all is well with you and you are safe from harm.

Blessings and hugs my dear friend.

Au fait 15 months ago from North Texas Author

Paula (fpherj48), thank you for reading and commenting on this article! I'm in a room with a very large doorway right now, but after such profuse praise I'm not sure I can get my head through that doorway! Thank you for your kinds words. This was a difficult article to write and it did require some serious focus.

Yes, people are worried about the wrong things in many cases because they are not well informed for one thing. A lot of people read this and refuse to let go of their ideas that they got from listening to people who were either uninformed themselves (despite being government officials) or whose intention was to lie and scare people into voting for them. Neither excuse for misleading the public is especially flattering in MHO. Not only do some government officials want to get votes by instilling fear, but they want to use their lies as a reason to cut benefits (Social Security, Medicare, food stamps, Medicaid, etc.) without constituents objecting and complaining.

When did it ever make sense during a budget crisis of your home budget to ask your employer for fewer hours, lower pay, or to quit your job outright? Officials say our national debt is an emergency, yet they are cutting taxes on the wealthy, in some cases to where some millionaires are paying no taxes at all. If this county is truly in trouble, wouldn't every citizen want to do what they could to get it back on its feet? It seems to me that cutting anyone's tax in a financial emergency makes no sense. That is in fact what is causing and fueling the emergency in the first place.

fpherj48 15 months ago from Beautiful Upstate New York

The amount of research and focus you put into a Hub is amazing. This of course would explain why your hubs are always excellent and very educational.

I have learned a wealth (pun intended) of information that I have either not been aware of at all or had misconceptions. There's plenty of proof here that most of us are spending valuable time and emotion worrying about the "wrong" things & not paying attention to the REAL issues!

You are this site's "ideal" writer. Better said, HP owners must LOVE you. You're the Poster Girl for the PERFECT article!!

Shyron, thank you for coming by. I don't think anything will sway the Tea Baggers from parroting what they've heard no matter how clearly one tries to explain the truth of these matters. Take care . . .

Au fait 18 months ago from North Texas Author

Colorfulone, thank you for stopping by and for the Tweet! Hope this article made the national debt a little more understandable in your mind. I think not understanding what it is, where it comes from, what's included in it, etc., is why people find it so scary. It certainly makes it easy for charlatans to take advantage of people.

It's just a matter of researching the debtt using credible sources like any other subject. What first got me interested (I didn't understand it any better than anyone else once upon a time), was reading an article on Fox News website. I rarely read anything they write but this caught my eye because it said basically what I've written here. More than 2/3 of the national debt is owed to ourselves, not to any other entity. We owe China less than 2 Trillion of the entire debt and that is because they invested in treasury certificates. Changes the picture a little bit when you see it the way it really is.

Shyron E Shenko 18 months ago

I am back to share this again, the scare tactics of tea baggers will be rising again as they kick off their campaigns.

It is my hope that people will begin thinking for themselves SOON.

Great article.

Blessings and Hugs, hope all is well

colorfulone 18 months ago from Minnesota

You are very knowledgeable about the US national debt.

Interesting hub to tweet.

Au fait 20 months ago from North Texas Author

Stanfrommarietta, thank you for taking time to explain about securities and money and how they are all related to our national debt, etc. Part of the debt includes investment securities (according to the referenced economists I used here) and I think that may provide some of the confusion people have about the debt.

However, I think most of the confusion comes from conservatives who insist we owe all that money to China and Middle Eastern Countries. So many of our congress members have no understanding of our monetary system any more than the people who voted them into office, but even those who have some understanding want voters to believe 9/10 or more of the debt is owed to China and they are willing to lie to get those votes.

stanfrommarietta 20 months ago

A lot of confusion about the 'national debt' comes from people confusing US marketable securities bought for investment purposes with US marketable securities bought by banks to fund deficit spending.

The investment use of the securities does NOT fund our federal government's (or any government's) spending.

The investment use of the securities is like bank CD's. You are probably familiar with those, because they are savings accounts. Your money is kept in time-deposit accounts in the bank. When the maturity date on the CD comes around, you can then draw out your money plus interest earned.

No one thinks that the fact that the bank has all these 'debt obligations' to you and other CD investors, to pay back your time deposits, means that the bank is about to fail because it has so many of these time-deposit accounts to pay back. The money is there to return!

The problem for the bank is the interest, and it earns interest on loans it makes to other individuals. The interest the bank charges on its loans is higher than the interest it is paying out on its CD's. So, it earns a profit on the interest it earns even after paying it's CD holders their interest.

The same applies to the US Treasuries held by investors in them, with one exception.

The US government doesn't earn interest on making loans to get money to pay the interest on its securities (which are like the CD's).

The Treasury gets interest money by borrowing money from banks in the same way it borrows money to fund the deficit spending. It does this borrowing by issuing and selling securities, which are like IOU's. And it rolls over these securities just like it rolls over the securities sold for deficit spending money. The roll-overs are just swaps of new securities with new future maturity dates plus interest.

The principal is never ever paid back this way.

I know this sounds like borrowing from Peter to pay Paul, because it is. But it works because banks always will be able to lend money to the Treasury, because when they lend (in our fiat money system) they create new money out of thin air for the loan. So a bank can always create money for loans. And that means our Treasury always has a Peter to borrow from to pay Paul. Because of that, it is not a Ponzi scheme.

They can't do that because it is illegal for a bank to lend itself money directly or for banks to borrow from other banks for their own profit.

Imagine banks borrowing from themselves or each other and then spending all the money they borrow on huge palatial homes, luxury yachts, jet aircraft, Italian suits, Parisian gowns, endless jewels, for everyone in the bank.

And then when it comes time to pay back the loans to other banks, they just borrow from themselves and pay the other banks.

Schemes like that put bankers in prison.

But the Treasury can do this, with the limitation that it can only spend on what Congress authorizes it to spend on. It is authorized to pay interest on loans to the government. It is authorized to borrow money to pay for deficits and pay interest on its borrowing. That rules out borrowing to spend on whatever Treasury wants.

Well, banks have similar limitations. They can lend to non bank entities any amount. They need to make reasonable efforts to get their borrowers to pay back their loans or have collateral to back up their loans. When banks make a lot of bad loans, then bank regulators get concerned, and the bank may be taken out from under the bankers in charge for incompetence or even fraud. The banks' books have to balance with minimal losses.

Congress needs to put limitations on its spending because in principal it can create any amount of money needed, even more than it takes in in taxes, and in certain cases this will cause serious inflation. So, Congress needs to keep its eye on the inflation meter and take action when inflation occurs.

A little inflation like 3% per year is not serious. The loss in value to dollars of this amount of inflation is sufficient to discourage excess long term saving. It becomes serious when it rises above that, and especially when it gets up in the teens or more.

There are numerous ways to fight inflation. Cut spending, increase saving. Raise taxes to drain money out of circulation of money in the United States while cutting spending (create a surplus). The Fed raises interest rates. This forces banks to raise their interest rates on loans. Sell Treasury securities to banks and investors. That drains bank reserves and investors' checking accounts. That takes money out of circulation. Raising interest rates encourages people investing in savings accounts while discouraging borrowing. Encourage buying imports like at WalMart and Target, which drains money out of circulation in the U.S. to foreign accounts.

Money should be created to facilitate the production of goods and services by making it available for exchanges of these goods and services between parties in the economy.

Money is tokens in units of account for assessing relative value of goods and services for goods and services.

There is no standard unit of value for assessing relative value.

Value has to be negotiated between parties.

Excess money should be avoided to avoid inflation.

Excess money will happen when the economy reaches full production with full employment at stable prices and more money is created than needed.

The limitation on production is availability of raw materials and industrial capacity to convert those materials into sellable goods and services at stable prices.

The limitation on employment is the number of workers seeking work at stable wages.

So, there are a lot of new things to understand about how our government gets money for deficit spending by borrowing from banks; how it rolls over its debt forever, making the principal never to be paid, which means it never will be a true debt; how interest is obtained also by borrowing, and how our banks provide money to the Treasury by lending money they create out of thin air.

The Fed also gets involved in dealing with the debt on deficit spending when it does Quantitative Easing: buying securities and toxic assets from banks to restore them to full functioning.

The securities held by banks are most likely for deficit spending. Investors hold their securities independently of those held by the banks. So, these are to be treated separately.

When Fed buys these securities from banks they are usually mature securities. It buys with money it creates out of thin air and puts the money in the banks' reserves.

At the Fed the securities are sort of in limbo because they are not "held" by any nonfederal entity, and so the debt to the banks has been cancelled. But the Fed does not 'hold' them in the same sense as did the banks. There is still the implicit obligation to pay a nonfederal holder their face value. The Fed does not fully own the securities and is not deserving of full value for them for the Fed's own use. The Fed is owed 6% of the interest on the securities as a transaction fee to fund Fed operations. This makes the Fed independent of Congressional appropriations, and able to use its own judgment (which likely is more knowledgeable than Congress').

The Fed will then swap its mature securities for new securities with the Treasury. This extinguishes the debt obligation on the mature securities.

The Fed will sell the new securities to banks and investors during inflations to drain temporarily money out of circulation.

The money for deficit spending in both the Treasury's case and the Fed's case becomes debt-free, new money, capable of causing inflation if excess beyond the point needed for full production and employment at stable prices and wages respectively.

So, taxpayers never have to pay taxes to pay down the national debt.

Au fait 20 months ago from North Texas Author

Ezzly, thank you for commenting on this article. I've noted some of the Republican candidates seem to be trying to resurrect the debt crisis. China is owed precious little, but one of the candidates is trying to scare people into thinking China owns us all over again.

ezzly 20 months ago

Very refreshing to read this as my hubby says China depends on the USA to import their goods to etc and now that the dollar has strengthened against the Euro I really hope those scaremongers are eating their words.

stanfrommarietta 21 months ago

Au fait how do authors contact you?

Au fait 21 months ago from North Texas Author

Shyron, thank you for all that you do. Appreciate your kind words and the referral to daughter.

I think the freezing temps are over for this spring, at least I hope so. The ice was even worse than the cold.

Hope your meeting goes well tonight. Give 'em hell!

Au fait 21 months ago from North Texas Author

Stanfrommarietta, I so appreciate your comment and agree that most politicians who come from the general population after all, do not understand the debt. To compare it to our household debt is for the most part ludicrous. There is very little comparison.

Sadly, people expect their elected politicians to understand everything about government, and they do not. Many are not qualified for the jobs they're elected to, and most voters are not qaulified to judge who is qualified to handle our national finances.

A vicious circle. People who have no idea about our national debt are making decisions about it because people who know nothing about our national finances voted them into positions to have that power.

Au fait 21 months ago from North Texas Author

Perspycacious, thank you for stopping by. Yes, I heard Boston was getting hit again. Back when the record of 100 inches for the year was made, I did shovel more than half of it myself as my husband pulled a muscle in the process of trying to throw the snow up to the tops of the piles of snow and that was more than 7 feet in the air. I picked up where he left off. There's no place to put the snow there and that is the problem.

Shyron E Shenko 21 months ago

Au fait, I just came across an article I saved for May 1990, when I read it I thought about your article and wished this man Dr. Michael K. Evans, who wrote the it could read yours.

Voted this up, UAI and sharing.

I hope all is well with you and you are staying warm.

Blessings and hugs.

P.S. I recommended Kate for a pet sitting job, someone ask about one.

Au fait 21 months ago from North Texas Author

Tamirogers, thank you for reading and commenting on this article and for sharing your thoughts on this issue. Also for the votes!

Au fait 21 months ago from North Texas Author

Nadine May, thank you for reading and sharing your thoughts.

Au fait 21 months ago from North Texas Author

Shyron, thank you for bringing attention to this article. I hope it does open people's eyes and make them realize that if they were lied to about this, what else have they been lied to about? I hope people will take it upon themselves to learn and understand things and not just take the word of people who should know, and may know, but who have a different ax to grind.

It isn't easy staying warm, that I can say for sure. Take care and God bless . . .

stanfrommarietta 21 months ago

I don't think most politicians, GOP or Dem, or other, understand the national debt. They just see the word 'debt' and that makes them think of their own borrowings and how they need to pay it back. But securities are something else. The government uses them for deficit spending which requires borrowing. But then the Treasury just keeps rolling over the securities, swapping new securities for mature ones at the banks. (Banks are the ones who hold deficit spending securities. It's easier for the Fed to deal with them than Chinese or Japanese investors, or even investors from Omaha.)

Although they are the same kind of marketable securities, those held by private and foreign and state and local investors are not used to cover deficit spending. Government gets what it needs for that from banks. And banks under fiat money also create money out of thin air when they create loans. They are not lending against the funds in other depositor's accounts. No need to since the money doesn't have to be backed by a commodity. So, they can create big amounts of money and lend them to the government in buying securities.

But investor securities are sold to investors and the proceeds from the purchase are put away in a time-deposit account at the Fed (the government's bank). This is something most people are tripped up on, because they don't realize most of that money is still existing in accounts held by the government for the investors. When the security matures, the principal is taken out of the time-deposit account and returned to the

investor. Interest is added. That's what the investors were after. The Fed can make that out of thin air directly and give it to the investors. If the Treasury has to give back the money for the mature security, it can just issue more securities and get interest money that way. It will then just roll over the debt on these interest securities, time after time, forever, and ever by swapping new securities for old.

It's not a Ponzi scheme because at no time will it be impossible for the Treasury to borrow money unless it comes up against the debt ceiling, which I think is unconstitutional.

Why isn't the Administration challenging the debt-ceiling as unconstitutional. If Congress can put limits on its power to pay debts and borrow money, then it can put limits and end

any of its other powers and rights in the Constitution. But that's what Constitutional Amendments are for. Congress does not have the power to change the constitution itself alone.

What Congress should do is abandon the debt ceiling and think of ceilings on spending. Congress can do that. Even if it is a dumb idea. Just decide what you are going to spend and stick to it.

Securities are a very bad thing to use as measures of economic trouble, because they are easily handled by Fed and Treasury.

Taxpayers have no part in handling this.

Perspycacious 21 months ago from Today's America and The World Beyond

Your 1995-96 snowfall record is being bested this week in Boston. No longer 100 inches, but likely to hit at least 107 inches. Just be glad you didn't have to shovel it all! One company did drone photography of Boston you can look up, if you are so inclined.

Au fait 21 months ago from North Texas Author

stanfrommarietta, thank you for taking the time to share your thoughts and knowledge on this difficult subject.

I know it's a confusing subject for many people and they prefer to accept the explanation of their elected officials even though those officials aren't entirely truthful and are really confusing the matter more for their own benefit.

Tamirogers 21 months ago from Seattle, Washington

I am glad you wrote this hub. I am so tired of people picking a side on this issue (based on party) without really understanding the problem beyond hearing sound bites on "news" channels. Good for you jumping in! SO educational. Voted up and useful!

Nadine May 21 months ago from Cape Town, Western Cape, South Africa

Since our reality is all an illusion anyway, then so is currency. Giving our individual power away due to the fear surrounding MONEY, that is for me ludicrous, but my head off to you for this comprehensive article.

Our world is like a monopoly game and that is how I treat it.

Shyron E Shenko 21 months ago

Au fait, I am back to re-read this and to bring it to the attention of those who have not read it and think that we owe it all to China or some other foreign country. This is a very informative hub and eye opener.

I hope you are staying warm and safe.

Blessings my dear friend.

stanfrommarietta 21 months ago

It became clear to me that people think wrongly that in every case the 'debt' obligation refers to money borrowed to do deficit spending. But it is not true. 87% in 2010 of the debt to non federal holders of US securities were held by investors who were using the securities like bank CD's to have a safe place to keep their dollars and earn a little interest. That means the money they deposited in buying the securities is still there as principal in their time-deposit accounts at the Fed. (That's where these accounts are held). The money has not been spent away into circulation. It will be drawn out when the holder comes demanding it in return for his/her/its mature security. The Fed (or the Treasury) can make the money for the interest out of thin air (the Treasury has other banks do it for it, by issuing securities they buy, because banks working with fiat money must make money out of thin air, because there is nothing to back them). When on the gold backing system, the bank could not create money out of thin air that was not backed by gold. It had to lend some of its depositors' dollars to borrowers, otherwise the money would not be legal since it would not otherwise be backed by gold. Hence there were 'fractional reserve requirements' designed to keep on hand just enough deposits to cover the loan. It's sort of Ponzi scheme like.

As for deficit spending, the Treasury rolls over securities bought to cover deficit spending. It swaps new securities for the mature ones held by the banks. It adds in the interest to make full value for the securities. It does this again when the new securities mature, and again, and again.... forever. The debt's principal is never paid off, only the interest. So, it's not really a debt but a way of injecting more money into the economy via interest on the securities. Effectively the deficit spending money is now debt-free. Everyone agrees to it.

But should the banks ever want to redeem their principal, they could always put the mature securities up for public auction and the Fed will likely be the only one to buy them, especially if there is a recession or depression. The Fed wants to take possession of securities so that it can swap them for new ones with the Treasury and then sell them to banks and investors to drain money out of bank reserves and out of investors' checking accounts. It will do this when there is inflation. Why? go figure.

As for the government series securities, the Treasury can always issue securities and sell them to banks to get dollars to pay for the govt. series securities. They are not a problem either.

Au fait 22 months ago from North Texas Author

Jo Goldsmith, thank you for reading and sharing your thoughts on this important subject. Most of the time Congress people don't make a big deal out of what they're doing and so even people who are paying attention or trying to may miss some important bill they've passed, etc.

Au fait 22 months ago from North Texas Author

Jandee, thank you for stopping by. Yes, I agree, we are, and we should really be mad as Hell by now and refusing to take it anymore. However, the National Debt, as explained here, is not a reason to lie awake nights. We have more pressing problems to address . . .

Au fait 22 months ago from North Texas Author

Suhail and my dog, thank you for your validation. Not everyone knows that Reagan tried to pass universal healthcare but it was stopped in its tracks by none other than Ted Kennedy. Kennedy didn't want Reagan and the Republicans to get credit for it, and as a result, we the people are still suffering because The Affordable Care Act is not a program like Medicaid or MediCare, it's only insurance reform. Much needed, but it doesn't cover everyone and so many are still without healthcare, mainly in the Red states where governors have refused to expand Medicaid as called for by ObamaCare.

Jo_Goldsmith11 22 months ago

This is so incredible~! You have done some serious research here! I really was captivated from start to finish, and the cool thing is I learned more than I knew before. And I am no longer in "fear" the China government will try to take over our country! What is so striking is that Pres. Obama is looking to raise tax on the 1 % of the wealthy.

Unfortunately, it is persons like Rubio (FL ) and all the other GOP members who are now in control of both houses. That we Americans are going to see more of the same hardships! Social security should never be touched, and if anything there are sometimes mistakes made by them that the average American doesn't have the "energy" or "strength" to fight against them for their mistake!

You are right, we as American people need to stop adding to the debt and hold accountable these "liars". Yet, I am afraid it will fall on "deaf ears". Time will tell, when the 2016 election cycle happens. Let's pray and keep our fingers crossed!

Shared and Tweeted! :-) Up most definitely ++++

Au fait 22 months ago from North Texas Author

BradMasterOCcal, thank you for taking time to read and comment on this article. No one is arguing (that I know of) that SS and Medicare aren't taxes. Thought I made it clear that there was a large surplus in the SS trust funds and so that money was borrowed from those funds to pay for other shortfalls.

Regardless of any of that, the fact is that China didn't loan us all thet money and we don't owe all that money to China. Most of the debt is made up of things we really need, like Social Security and other retirement vehicles as well as loans for houses and businesses. They money is owed to ourselves, so there really isn't anything to lie awake nights over.

Very true that we have engaged in a lot of nation building (some people call it wars) in recent times (mostly under Bush 2), and it's off budget, but still not beyond our means to manage. There are a lot of problems that need addressing regarding taxes and how they're spent, but this article is about the National Debt and the fact that it's not what some politicians have tried to lead us to believe. We don't have to be scared and our country is not going to crash and burn as a result of the debt.

Many of the things you wrote about are of great interest and certainly related to this issue, but really deserve articles of their own. I look forward to reading them when you get them done. :) If I were to add them in here I would have a book, not a hub. Thank you again for taking time for this article.

Au fait 23 months ago from North Texas Author

Pinto2011, thank you for commenting and for your high praise. I'm glad if this article has been helpful to you and my other readers and hopefully put most of their minds at ease.

Au fait 23 months ago from North Texas Author

Perspycacious, thank you for sharing your thoughts. The vast majority of our national debt is owed to us. To shrink that debt stop contributing to any investments and stop buying anything at all on credit. Stop people from paying into Social Security. Convince your friends and neighbors to do the same. The country will be even worse off than it is now, but at least the debt will be smaller and some people may sleep better if they still have a bed to sleep in.

The wars were started by Bush and they continue as they have pretty much become nation building. They are off budget as that has become the norm since Reagan started doing things that way.

jandee 23 months ago from Liverpool.U.K

Whatever ! we are all being taken by the boss class !

keep well,

regards jandee.

Suhail and my dog 23 months ago from Mississauga, ON

C.E. Clark,

Back in 1980s, I was only a US citizen. You are absolutely correct about Reagan. Compared to the Republicans of today, he would be a liberal.

Au fait 23 months ago from North Texas Author

Suhail and my dog, thank you for taking time to read this article and to share your thoughts and experience with U.S. politics. I'm always surprised at how much interest Canadians take in our politics and political process. Even though Reagan did a lot of harm, he was grossly liberal compared to today's conservatives. Today conservatives would probably run him out of town on a rail . . . :)

Au fait 23 months ago from North Texas Author

phdast7, Theresa, thank you for checking this article out, for taking time to comment, and for your supportive words. It was indeed a huge undertaking, but worth it if only to learn the truth for myself.

bradmasterOCcal 23 months ago from Orange County California

First of all , Social Security is a Tax, as is Medicare.

It is mandatory on wage earners, and their employers to pay FICA.

There would be no debt from these two systems, if they had been managed for the future, and not on their yearly revenue.

The Federal Employee Retirement System is privately managed, and the government pays into that system. They also have a Federal Employee Health System that they pay into.

As you said state and local governments which can be in serious trouble when they continually spend more than the get in revenue. These public pension funds draw a lot of red ink these days. This puts tremendous debt on these governments. Theses governments can raise taxes, and fees, but they can't print money.

The Democrats created these systems, but both parties robbed the trust fund. It never should have made law, and in the alternative it should have been privatized. The better approach would have been to have put it under that same type plan that are provided for federal employees.

The debt is a problem generated by both parties. They just were at different ends of the debt creations.

The people didn't create the debt, especially those from SS and Medicare. The politicians that created those systems, along with decades of congressional mal, and mis feasance made these Debt.

The GDP is useless as a financial tool as long as it includes government spending.

The federal government is obese, since the 1940s, they have increased their size, and scope. They did this at the loss of scope by the states. The federal government spends a lot of money in areas that they don't belong.

The last constitutionally declared war by the US Congress was WWII. And yet since the 1950s, we have been engaged in serious military action around the world, but they are not wars.

We don't even win these military actions sometimes, and we don't win the battle.

The US Income Tax System creates poor people and rich people, but the middle class is falling into the poor arena.

The taxes are unequal with different tax brackets. The highest tax bracket is supposed to tax the rich more heavily. This is only on paper with the higher tax bracket, but at the same time the Internal Revenu Code is ninety percent usable to lower their taxes, while those that earn a wage cannot use but a very small amount of the IRC for their advantage.

This has made more billionaires in recent years, and more poor people. While the rich taxpayers seem to pay in total the bulk of the taxes, it doesn't show how much they should have paid, if they didn't use the IRC.

I didn't find out what the problem was here, and how we can solve it. There is no way people can stop paying into SS and Medicare, it is mandatory. And they can't stop using their credit cards because, they don't have discretionary real money.

Au fait 23 months ago from North Texas Author

Tillsontitan, thank you or reading and attempting to understand all that is written here. I totally agree that we have enough problems to deal with in this country that it is completely unnecessary to fabricate problems. If people would just stick to telling the truth about the real problems we face there would still be plenty to talk about, get mad about, and argue about, etc. No need for lies.

Back when Social Security came into being there were a lot of older people who were dirt poor with not a penny to their names. Social Security was intended to give them the slightest bit of independence, such as it was, when living with relatives, etc., and it helped encourage family to take them in as they wouldn't be 100% dependent on family that might not be so well off themselves.

True that Social Security was not intended to totally support anyone, but to prevent total destitution. It was not temporary, unless you consider life to be such, but it was limited and it was expected people would have other means such as family to help them out, or pensions, part-time jobs, etc. Now in more modern times people have somehow gotten the idea that it should totally support them in old age. It was never intended to do that . . .

pinto2011 23 months ago from New Delhi, India

This is like reading a shorter version of encyclopedia. You have given a detailed account of the matter in hand. Very helpful insight.

Perspycacious 23 months ago from Today's America and The World Beyond

Spending to fix a leaking pipe or a leaky roof, a weak railing, or a rotted step, is wise spending. Spending for what we used to accept as "a gold fleece" was a not humorous play on words.

I paid $1.789 for my gallons of gasoline yesterday and silently thanked a gal for coining the phrase "Drill, baby. Drill!" Yet memory served of having once paid less than 20 cents per gallon, while in the interim some shakers and movers had made their fortunes as the price rose, and rose.

61% of eligible voters didn't vote last year, so is it any wonder that some corporate "persons" have too much influence in our daily lives, and so many of us anticipate only "more of the same" from this new 114th Congress?

Save the savings, and use some of it to counter the big money in 2016 when we try to find an intelligent, righteous, determined leader even the 61% can get off their duffs and vote for.

Perspycacious 23 months ago from Today's America and The World Beyond

George Washington cautioned that we might have to borrow in times of war, but when warring is over the priority has to be to pay off what we borrowed and reestablish America's credit.

We have been borrowing in times of war, and the borrowing has been essentially continuous even in times of relative peace. At some point the piper will have to be paid....before it is too late and we all end up in what will amount to a debtors prison.

Suhail and my dog 23 months ago from Mississauga, ON

As a student I was a volunteer for Reagan-Bush campaign in 1984, but felt ashamed of that stint forever afterward.

To balance that mistake out, my family volunteered for Obama campaign in 2008 in western PA and eastern OH. Needless to mention, people felt the need to bring change in that 'Red' region.

Paul Kuehn, thank you for reading, commenting, voting on and sharing this article! I'm not sure it's scholarly, but I appreciate your generous compliment. I think perhaps my opinion was a bit too strong here, but once the horse is out of the barn . . .

I think people who are willing to understand it will do so, but some people won't even consider anything that doesn't already agree with what they want to believe.

You know, if it wasn't so easy to lead some people down the garden path, this country (and the world by extension) might be a better place because politicians would have to actually do their jobs instead of simply stuffing their own pockets.

tillsontitan 23 months ago from New York

Thank you so much for this insight. I have to admit I really didn't understand the whole situation but now have a grasp. Of course now I'd like to strangle all those fear mongers. We have enough to worry about without throwing lies into the mix.

Though Social Security was started as a temporary fix people have come to depend on it and there's no reason it can't continue.

Au fait, this is an awesome brilliant hub or should I say essay that certainly deserves to be published in a scholarly journal. It is very well researched and presented in a manner which most people should be able to understand. I certainly learned a lot reading this article and will be sharing it with HP followers and on Facebook. Voted up as awesome, interesting, and very useful.

Au fait 23 months ago from North Texas Author

Peggy W, thank you for sharing this article and for commenting on the world's state of affairs. Of course many countries are 3rd world (and this one seems that way at times), and so of course we should be doing better than they are. Several European countries we often think of as very stable, maybe more so than the U.S., like Germany, for example, actually have more national debt than we do compared to their GDP. I think the reason the din about the national debt has mostly quieted is because lots of people have learned we actually owe that money to ourselves and it's not the dire situation some politicians wanted us to believe.

Agree however, that the countries around the world are so interconnected and getting more so daily, that when one hiccups we all get a little indigestion. Let's just hope it doesn't turn into heart burn again. Of course it was the big banks that caused the last problem and not only banks here in the U.S.

If I can get through tonight's awful cold temps I'll probably be good for the rest of the year! ;)

Peggy W 23 months ago from Houston, Texas

On CNN news recently it was stated that despite our economic problems we are still doing much better than many other countries around the world. Of course since we are all so interconnected these days, a hiccup in one country often affects others. Sharing this once again. Stay warm up where you live. You are probably getting the rain that we are having since it is so widespread.

Happy New Year!

Au fait 24 months ago from North Texas Author

Perspycacious, thank you for coming by. Yes, we still owe that debt, and will continue to do so as long as people keep investing in their retirement, Social Security, education, homes, businesses, etc. Until the last penny of interest is paid on your investments there will be a national debt. Encourage people to stop investing and stop doing it yourself, and and once that happens, no more debt and no more interest to pay. A messed up country, but a debt free country. ;)

Perspycacious 2 years ago from Today's America and The World Beyond

Interesting perusal, however, we still owe all that debt and I am still waiting for someone to propose how we pay its interest and principal within my lifetime and that of my children and grandchildren.

Au fait 2 years ago from North Texas Author

DeborahDian, thank you for commenting and sharing your thoughts on this article.

It certainly surprised me when I discovered this information and then it made me angry that those people who are supposed to represent all of us and look out for our best interests and our country's best interests had in fact lied to us all for their own benefit. It has been mostly Republicans who did this and continue to do it, but there have been a few Democrats who did it too.

It pays to be informed so that politicians cannot lie to us and manipulate us with their lies. Thank you for you kind compliments also.

DeborahDian 2 years ago from Orange County, California

Once again, I appreciate your well-researched articles. This one on the National Debt should be everyone who thinks they already know everything there is to know about our debt. They might be surprised.

Au fait 2 years ago from North Texas Author

Shyron, thank you for coming back for a repeat. These are complicated issues for sure. No, China does NOT own our national debt, our country, or anything worth worrying about here. Guess who really owns our national debt?

Au fait 2 years ago from North Texas Author

Deborah-Diane, thank you for your high praise! I got a lot of my information for this article from government sources. Two of my graphs come from the Government Accountability Office, and the Department of the Treasury. Glad you found it useful!

Deborah-Diane 2 years ago from Orange County, California

You write some of the most interesting and best researched articles here on Hubpages. The government should hire you to write their reports!

Shyron E Shenko 2 years ago

Au fait, I had to come back to re-read this. Every one should read this and then realize that China does not own national debt.

Voted up, UABI and shared again.

Au fait 2 years ago from North Texas Author

Peggy W, thank you for tweeting, pinning, and sharing this article!

It has cooled off a bit now, down in the lower 90s instead of the high 90s, but still so humid. I remember several years ago when we had our Christmas tree set up and the windows open to try to cool the house, both at the same time in December.

Au fait 2 years ago from North Texas Author

Caseymel, thanks for stopping by. The amount of the debt isn't so important as who holds the debt and what the money is being used for. Hope the details have eased your mind a bit.

caseymel 2 years ago from Indiana

Wow! I knew the National Debt was high, but I didn't know the details. Thanks for sharing!

Peggy W 2 years ago from Houston, Texas

I know that you are going to enjoy the cooler temps just like we will when fall and winter arrive. Sharing this good article again by tweeting and pinning. Will share again with my HP followers.

Au fait 2 years ago from North Texas Author

Kathleen Cochran, thank you for coming by and commenting. Thank you for the high praise. I think you're one of the best writers on HP, so coming from you it means a lot.

I looked for your hub on your profile page. You should have mentioned the name of it in your comment. Do that when you get a chance. I'd like to read it and I'm sure a lot of other hubbers would too.

Au fait 2 years ago from North Texas Author

Shyron, thank you for stopping back and for the votes and share. I think many people don't want to know the truth about the debt. They think if they refuse to learn about it that they will look intelligent blaming Obama for it. They don't understand that sticking one's head in the sand, manufacturing a lie and insisting the lie is truth does not make them look intelligent. China does not own our debt. Thanks again for coming by. Hope you're having a good Sunday . . .

Kathleen Cochran 2 years ago from Atlanta, Georgia

I wrote a hub on this subject as well: Yours is way better. A lot of hard work here. Well done.

Shyron E Shenko 2 years ago

Au fait, I had to come back to re-read this. Every one should read this and then realize that China does not own national debt.

Voted up, UABI and shared again.

Au fait 2 years ago from North Texas Author

DealForALiving, thank you for coming by and for your high praise.

Au fait 2 years ago from North Texas Author

Shyron, I'm glad if this simplifies or at least makes the national debt understandable for as many people as possible. I know a lot of people think if they ignore politics it won't affect their lives, but in fact politics affects the life of every living thing no matter how they ignore them. Knowing how our government works and how it's supposed to work (not usually the same thing), is imperative.

Thank you for the share. No rest for the wicked . . . take care.

Au fait 2 years ago from North Texas Author

AudreyHowitt, thank you for stopping by, for the high praise, and for the follow!

DealForALiving 2 years ago from Earth

This is a truly impressive hub you've put together. Kudos on your research and writing abilities!

Au fait 2 years ago from North Texas Author

Peggy W, thank you for sharing your thoughts. I agree, it should never have been touched.

No offense, but as I told a coworker this past week, I'd prefer -10, yes 10 degrees below zero, any day, to these temps of 100+ degrees. Being from WI, I know all about cold and I find it preferable, so long as it doesn't drop too low.

Hope you are in a cool place!

AudreyHowitt 2 years ago from California

What a well written and well researched article! I thought I was following you! I am now!

Au fait 2 years ago from North Texas Author

PegCole17, thank you or stopping by. I think it's good for people to find out the reality of our national debt and government websites are a good place to do that. Hope all is well with you . . .

Peggy W 2 years ago from Houston, Texas

I agree. It should never have been touched to use for other purposes period! It was entrusted to them.

Hope you are staying cool. These summer temperatures in Texas can be brutal! Of course we have nicer winters when the folks up north are snowbound. I guess it all works out.

Au fait 2 years ago from North Texas Author

Peggy W, thank you for reading, commenting, voting on and sharing this article!

Yes, when initially set up, Social Security was to be 'untouchable' as you say, but it soon had such a surplus -- and you know how politicians hate stacks of money they can't get their hands on -- that they passed the law requiring SS surplus to be invested in treasury bills -- which end up in the general fund. Now some politicians don't want to pay the SS funds back and cutting people's benefits and raising retirement age is a way of not having to pay it back.

I think any member of congress who voted/votes to abuse SS funds as clearly many have already done, should be flogged publicly on the Town Square -- regardless of what party they belong to.

Au fait 2 years ago from North Texas Author

Thank you again, Shyron, for your comments and high praise, votes and share. Your comment was here all along. Several came in at once and I couldn't keep up.

Getting ready to head back to work in a little while. Have a good day, stay cool, and take care . . .

Au fait 2 years ago from North Texas Author

Ericdierker, thank you for commenting and sharing your thoughts on this important subject! Yes, fear works so well because people are uninformed about the debt and other subjects relating to government and politics -- sadly often by choice.

Shyron E Shenko 2 years ago

Au fait, I came back to share this again, because it is so important.

I hope you get some rest before your work days begin again, now that school is back in session.

Blessings to you my dear friend.

Au fait 2 years ago from North Texas Author

Peoplepower73, thank you for taking time to read, comment on, vote on and share this article! Very much appreciate the compliment and your kind words.

Yes, the debt ceiling must be raised from time to time because of budget deficits. If some people were paying their fair share of taxes like the rest of us must do, I think we could get our deficit under control just as Clinton did. He did it by raising taxes on the wealthy and it worked really well. I'm talking about multimillionaires who won't even miss a couple of million if it came to that -- but of course it all but never does.

Au fait 2 years ago from North Texas Author

Shyron, thank you for your comments, votes, and shares. This was quite an undertaking, but I think most of what people need to know is included.

You may have noticed that the shrill rhetoric about the debt and how it is about to be another disaster and how it will burden our children has somewhat quieted. Now they are trying to think of some other way to manipulate people. This issue still ignites their own base because they refuse to let go of it even though most people now know it was an out and out lie.

Blessings to you and John, too, my dear friend, and I hope the 426 repeats itself!

PegCole17 2 years ago from Dallas, Texas

Interesting article with a lively discussion afterward. This inspired me to read more of the US Treasury Reports from the Bureau of the Fiscal Service website.

Au fait 2 years ago from North Texas Author

DDE, thank you for commenting on this article. Most people here do not make our national debt or politics in general a major part of their conversation. Many people are not informed about these issues, and still other people just don't want to raise issues that can be very volatile and end up in argument.

I know of no reason anyone should be ashamed of our national debt. Most European countries and most successful countries around the world carry more debt than the U.S. does. Not having a lot of debt may seem like a good thing, but the most successful countries around the world have more debt than the U.S. compared to their GDP.

Neither are ordinary citizens to blame for the lies some politicians tell for their own gain. Your friends who visit you most likely are not informed about the U.S. debt and may not care about it. Frankly, it wouldn't cross my mind to raise the issue of the U.S. national debt if I were to visit friends in another country who have no reason to be interested in our debt.

FYI, Croatia has a national debt of over 32 Billion -- about 62% of its GDP. The U.S. debt is about 69% of our GDP. Billion may sound better than Trillion, but not if you consider how much smaller Croatia's economy is compare to the U.S. economy. The Croatia stats come from Bloomberg.com

I'll just bet that you would have made a great history teacher...or economics professor. You have demystified some of this and it is not surprising that during WWII our debt ceiling was so much higher. Wars often necessitate that.

One thing I wish is that the government would not have borrowed from the social security funds. That should have been untouchable and I think that it was intended to be so. The threat to cut off funding for all those affected would have little teeth had all the funds + interest remained there.

Up votes and sharing!

Shyron E Shenko 2 years ago

Au fait, I know that Aunt Jimi must be very proud of you, I know I am.

This should be required reading by all institutions that teach Political Science.

I don't know what happened to my comment from yesterday.

Congratulations, my dear friend.

Voted up, UAI and shared.

Au fait 2 years ago from North Texas Author

Aunt Jimi, thank you for stopping by to check this out. I think your material added a great deal to this article and I appreciate the share too. Hope all is well where you are.

Ericdierker 2 years ago from Spring Valley, CA. U.S.A.

Very well done. I actually thought this all along. Same basic truth holds true in California where they use the fear to cut services and increase taxes. Thank you and Aunt Jimi

peoplepower73 2 years ago from Placentia California

I learned more about the national debt and I learned more about how to write a great article. I love your style of writing. One think I would like to add. That is, each president inherits the national debt of the previous president. The national deficit is different than the national debt. It has to do with the budget. Therefore when they talk about raising the debt ceiling, they are talking about the budget deficit. Great article voting up and all the other things.

Shyron E Shenko 2 years ago

Au fait, this is the most In-depth article I have read about our debt/deficit. I know Aunt Jimi must be proud of you. I know I am proud of you.

It still bothers me that the scare party plans to eviscerate our middle class and poor people, I mean Social Security and Medicare.

This one article should be required reading in all political sciences classes.

Voted up, UABI and shared with followers and facebook friends.

Blessings to you my dear friend.

DDE 2 years ago from Dubrovnik, Croatia

You did a fantastic job here. Always an informative and very interesting hub from you. I now know the more facts about the USA. I know of some people from USA who come annually to CROATIA for a holiday and don't mention to us what you have written here. They are always to proud to tell us the facts afraid or ashamed.

Aunt Jimi 2 years ago from The reddest of the Red states!

Just thought I'd stop in and say congratulations on putting all this information together. Pleased with how you used my material. I hope it will help people to see how badly everyone has been misled.